Hedge funds pile into bearish Japanese stock bets, bank says

Hedge funds added bearish bets in Japanese stocks at the fastest pace in over five years for a week between Aug. 2 and Aug. 8, as the Nikkei on Aug. 5 faced the worst day for the index since Black Monday in 1987, Goldman Sachs said in a note on Friday.

The bank said equity long/short hedge funds added 1.7 shorts, or bets stocks will fall, for each long position sold for the week between Aug. 2 and Aug. 8.

Japanese stocks collapsed on Monday amid a sell-off triggered by economic concerns and the unwinding of a popular yen trade that was financing investment in stocks, which reverberated across markets worldwide.


Portfolio managers net sold Japanese stocks in four of the five-trading day week finished on Aug. 8, as Tuesday was the only day they more bought than added shorts.

Goldman Sachs said hedge funds' net exposure to Japanese equities was on Thursday at 4.8%, down from 5.6% a week earlier.

As the turmoil spread overseas, hedge funds for the fourth consecutive week continued bearish on global equities, adding more short positions, the bank added.

One of the biggest prime brokers worldwide, Goldman Sachs tracks the flows of its hedge fund clients to report on trends.

Global equity fundamental long/short hedge funds were down 1.34% for the week amid the market rout, while systematic long/short funds rose posted gains of 0.77%.